Over the last decade, China has been working to shift from a manufacturing-led growth model fueled by low-cost labor to an innovation-led, higher-value-added model underpinned by strong productivity gains. Currently, though China is the world’s most populous country and its second-largest economy, and the country’s urbanization rate remains well below the global average.

Weak demand is dragging down China’s economic growth. While necessary to mitigate financial risk, will not resolve China’s monetary conundrum, much less protect China’s economy from the consequences of a financial crisis in the long run.

Last month, China commemorated the 20th anniversary of the death of Deng Xiaoping, the chief architect of the economic reform and opening up that catapulted the country to the top rungs of the global economic ladder. The anniversary comes at a time when economic openness is under threat, as the United States is now being led by a president who believes that the way to “make America great again” is to close it off from the world.

The accuracy of China’s official GDP and growth rates has long been a hotly debated topic, with the detention in January of Wang Baoan, the director of the country’s National Bureau of Statistics, on graft charges intensifying doubts about the agency’s integrity.

The International Monetary Fund’s recent decision to add the Chinese renminbi to the basket of currencies that determine the value of its reserve asset, the Special Drawing Right, has captured headlines around the world. But the SDR itself has not exactly dominated discussions – much less transactions – since its creation in 1969. So does the decision really matter?

Over the last two decades, a consensus about China's growth model has emerged, with observers arguing that a shift to an intensive, efficiency-driven growth is essential. But empirical research reveals a critical flaw in this assessment – namely, that annual efficiency gains in China far exceed those of the US.